Fund managers and analysts are increasingly using environmental, social and governance (ESG) factors in their work and being paid more for it, research has found.
Aviva Investors found a four-fold rise to 42% of fund managers and analysts who were incorporating ESG considerations into their jobs.
The rise in ESG factors for managers and analysts takes place as sustainable investment strategies continue to increase in prominence and as investors demand more tailored approaches to ESG.
Around 90% of asset managers recognise a growing trend toward sustainable investments, while 80% have seen a rise in requests for tailored ESG strategies.
“Good progress has been made in rewarding managers based on ESG criteria; however, almost one-third of respondents could not say with conviction that all their managers and funds take these considerations into account,” said Isabel Emo Capodilista, head of multi-manager research at Aviva Investors.
“Likewise, although 70% of respondents believe ESG issues should be integrated into executive pay, just 26% stated their own company does this. This is indicative of a struggle within the asset management industry to find consistency in its approach,” she added.
Over 70% of respondents already incorporate ESG factors into 75% to 100% of their investment processes, compared to just over 50% in 2014.
“ESG has become mainstream,” Capodilista said. “Our findings show investors want more tailored approaches as to how ESG can work best for them.”
According to Capodilista, a fifth of respondents undertake ESG stress tests to better understand risks that could impact investments and how to protect against them.
The survey found that 90% of participants engaged directly with companies, while over 80% used third-party research when approaching ESG integration.
But there are several challenges around ESG integration, according to the research. These include “availability and quality of data, low senior leadership buy-in, difficulty in measuring impact and understanding material ESG risks”.
“It is encouraging that over half of active managers who engage with companies believe it will improve performance, which suggests frameworks such as the principles for responsible investment are driving positive change and establishing industry standards,” said Capodilista.
Despite this, “a contradiction still exists between belief and execution” and there is room for greater uniformity across the industry, she added.
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